OECD sees growth peaking as investment lags and debt builds

Thursday, 30 November 2017 00:00 - - {{hitsCtrl.values.hits}}

PARIS (Reuters): Global economic growth is set to peak at an eight-year high next year as uninspiring investment and increasingly dangerous debt levels limit room for further improvement, the OECD said on Tuesday.

The global economy is on course to grow 3.6% this year before reaching 3.7% next year then ease back to 3.6% in 2019, the Organisation for Economic Cooperation and Development (OECD) said in its latest outlook.

The Paris-based policy forum nudged up its estimate for this year from 3.5% in its last forecasts dating from September, and left its 2018 projection unchanged.

“Things look really good now, but unless we see some robust private sector activity and renewal of capital stock, generating higher real wages, we are not going to maintain the growth rates we see today,” OECD chief economist Catherine Mann told Reuters

“There is still work to be done, we’re still resting a bit comfortably on the incoming data, which have been supported by fiscal and monetary policy,” she added.

Mann said that in particular companies were not investing enough to make up for the depreciation of existing assets, and even less so in making additional investments for further growth.

Despite weak private investment, households and companies were binging on cheap debt in many countries, exposing themselves to trouble as central banks tighten monetary policy.

Mixed outlook

With its strongest growth in a decade, the euro area was seen outpacing other major developed economies this year with 2.4% growth before easing to 2.1% in 2018 and 1.9% in 2019.

In September, the OECD had foreseen growth of 2.1% this year for the euro area and 1.9% next year.

Marginally raising its estimates for the United States, the OECD forecast growth in the world’s biggest economy would pick up from 2.2% this year to 2.5% in 2018, boosted by an expected cut in corporate and income tax, before easing to 2.1% in 2019.

The OECD trimmed its forecast for Japanese growth this year to 1.5% and estimated growth would ease afterwards as budget tightening resumed. It left its forecast for next year at 1.2% and estimated growth would fall to 1.0% in 2019.

But it warned that government debt, the highest ever seen in an OECD member at 220% of GDP, posed a serious risk and required a broad-based plan to maintain confidence in Japan’s fiscal sustainability.

The OECD left its estimates for China unchanged, forecasting growth would slow from 6.8% this year to 6.6% in 2018 and 6.4% in 2019 as exports slow.